College of American Pathologists
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  OK to donate select electronic record technology


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October 2006

Feature Story

Anne Paxton

A new federal “safe harbor” to protect donations of computer software that would advance electronic health records became effective Oct. 10. The safe harbor was created by two rules that were finalized in August to implement part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

The rules are intended to protect the exchange, with physicians and certain others, of nonmonetary remuneration in the form of electronic prescribing information and electronic health records. Without these exceptions, certain donations of electronic health information technology to physicians would be prohibited under Sections 1128B(b) and 1877 of the Social Security Act, also known as the anti-kickback statute and the “Stark” law, respectively.

The cost of implementing an electronic health record system can be high, from several thousand dollars to as much as $20,000 to $30,000 per doctor, said James B. Wieland, an attorney with Ober Kaler Grimes & Shriver in Baltimore during a recent audioconference on the subject, sponsored by G2 Reports. The safe harbor is intended to jump-start the process of getting electronic health records, or EHRs, in place. “The hope is that safe harbors will encourage institutions to provide this technology,” Wieland explained. In fact, one of the rules is set to expire in 2013 on the assumption that by that time, EHRs will have been universally adopted.

For now, several conditions must be met for the donor to avoid fraud-and-abuse prosecution for such donations. Among other requirements, the donor must ensure that the software is certifiably interoperable, meaning it can communicate with and exchange data with different systems. The donor must not restrict the use of the software or condition its use on referrals or doing other business with the physician or other recipient. And the donor can cover only 85 percent of the software’s cost; the recipient must pay at least 15 percent.

Wieland believes that the safe harbor could have limited impact. “There’s not much use in having a safe harbor if you can’t use it. My view is there is significant potential for that happening.”

The HHS Office of the Inspector General warns laboratories in its rule that they must be careful, said Hope Foster, an attorney with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, Washington, DC, who spoke at the G2 session. “The OIG says that in its experience, laboratories have used free or deeply discounted goods such as computers and fax machines to influence referrals improperly, and indicates it remains concerned about potentially abusive kickback schemes,” Foster noted. “The OIG promised to monitor this area to see if donating laboratories are qualified, safe-harbored donors.”

Noting it will be “alert to patterns of increased utilization,” the OIG said: “While increased utilization would not necessarily indicate fraud or abuse (and might, in some circumstances, reflect improved quality of care), the determination must be made on a case-by-case basis.”

Specific provisions of the rule have raised concern, among them the requirement that the recipient pay 15 percent of the donor’s costs. “The whole notion of paying 15 percent of costs is fraught with questions and issues,” Wieland says. For example, if a laboratory bought software in bulk and granted several sublicenses to customers, what would be the actual “cost” of the software? Wieland recommends that potential donors consider relying on the longstanding Stark exception for purchases of goods and services at “fair market value,” which is a simpler and more straightforward approach to Stark compliance.

Under terms of the EHR safe harbors and Stark law exceptions, labs are allowed to donate software and IT and training services needed to create, maintain, transmit, or receive electronic health records, but hardware is not included. So what about the hardware that many laboratories already provide physicians and other clients to enable them to order tests and receive results? Wieland says there should be no problem, because two separate safe harbors can work together.

“I’m assuming if you meet the Stark exceptions for software, the use of previously supplied hardware is probably okay. Even if somehow the software pulled the hardware into broader use, it’s a little hard to imagine anyone making an issue out of it.”

Anne Paxton is a writer in Seattle. The new safe harbor and an explanation of it can be found at 71 Fed. Reg. 45109-45137 (Aug. 8, 2006) and on the Office of the Inspector General Web site at